REAL ESTATE INVESTMENT

OPPORTUNITY 1224 E 57th St, Hyde Park, Chicago, IL

CONTENTS

1 – Summary

2 – Why Hyde Park?

3 – Map

4 – Why This Property?

5 – Property Gallery

6 – Comparable Properties

7 – The Renters

10 – The Financial Plan

19 – Summary

1

The following outlines an investment proposal for a single-family house in the Hyde

Park neighborhood in Chicago, IL as a rental property. I will begin with why Hyde

Park is a good environment for investment, then focus on why this specific location

is a great opportunity, explain why we as renters are perfect for an investor in a rental

property, and finally outline the financial specifics and why this investment is viable.

Hyde Park is home to the University of Chicago, a prestigious and influential

institution who’s impact on the neighborhood is large and sustained. The general

rule of thumb is that the closer to the center of campus (E57th St from S Ellis Ave to

S University Ave) a property is, the more valuable it is. We believe that given the

unique environment in Hyde Park, the desirable location of the property, and the

nature of how this property would be financed, that this house is a great opportunity

for one or more investors with the ability to contribute a total of around $225,000

for a down payment on a mortgage. Whether you pay for the house in cash, or

through a mortgage down payment, said payment will be the ONLY out of

pocket cost you pay for the entire duration of the investment. Given a 15-

year fixed rate mortgage, the cap rate on your investment will begin at 7.25%

and increase to 8.74% by the time the mortgage is paid off in 2035. If the house sells

when the mortgage is paid off, investors will earn a projected 543% ROI.

2

Why Invest in Hyde Park? As previously stated, the neighborhood lies in the shadow of the University of Chicago which is the main factor in real estate pricing in the area. For better or worse, the University has, and continues to, cause gentrification in the Hyde Park and Woodlawn communities. Below are some key points as to why investing in Hyde Park properties is attractive:

• The University of Chicago undergraduate population has increased every

year since 1992 when it was 3,425, to 6,801 today

• The total student population has increased from 11,441 to 17,559 in that

same time

• As demand for housing increases with the student population, the supply of

housing in highly developed Hyde Park remains relatively fixed making

existing properties more valuable

• The University is continuing its expansion of the undergraduate population

through the construction of its new Woodlawn Commons dorm (opening

next school year) which will house around 1,300 students

• As seen in the map on page 3, the University also pursues a policy of

expansion in terms of its own property. It has a history of buying extensive

amounts of property in Hyde Park which further decreases supply for

housing.

• Other developments not affiliated with the University such as the $500

million plan for the Obama Presidential Library in Jackson Park (the park on

the right side of the map) will also contribute to higher property values in the

future

3

Investment Property

4

Why Invest in this Property? The most attractive feature of this investment is the proximity of the house to the center of campus. As marked by the red dot on the map above, the property is only about 1.5 blocks from the most heavily visited building at the University (The Regenstein Library). Listed below are some of the specifics on the property:

• Address: 1224 E 57th St., Chicago, IL

• Listing Price: $925,000

• Home size: 2,765 sq. ft. (excludes large and useful basement and yard)

• Lot size: 3,428 ft

• 4 official bed, 3 bath, includes large backyard and overlooking deck

• North/south location: as good as you could possibly get. 57th street

divides North from South campus and is really the at the center of the

University of Chicago

• East/west location: between Woodlawn and Kimbark Avenues, only one

block east of the most valuable location in Hyde Park (S University Ave)

• Other than UChicago, also located just a couple blocks from local

restaurants, parks, and schools.

• House does not need renovation

• See next page for photos and floor plans

5

6

Above is a summary of comparable properties sold in the area. Please note

that our property objectively has the best/most valuable location of the

above. By this I mean that it is closer to the center of campus than any of the

above. At 2765 SqFt it also places above the average size, while the listing

price of $925,000 places below the average price.

7

Why Invest in Us?

What makes this rental property investment special, even more so than the details I

have outlined above, is us, your perspective renters. For full disclosure, I, represent

the Pi Kappa Alpha Fraternity at the University of Chicago. Understandably, you

might think the words “fraternity” and “investment” don’t belong within miles of

each other, but I believe, and intend to show, that owning a rental property

populated by a fraternity, especially this property and this fraternity, is one of the

safest investments you can make. Additionally, I believe my group is the most

intelligent, driven, and studious group of fraternity men on the planet, and I am dead

serious about that. Our members are not only the future leaders, politicians, brain

surgeons, investment bankers, and entrepreneurs of the future, but some have

already accomplished incredible things, even relative to other students at the

University of Chicago.

The biggest advantage we as an organization can give you as a rental property

owner, is a consistent stream of tenants, year after year. After only around

2 years on campus, we currently have 50 members, but at our current recruiting rate,

we will have over 90 members by 2022. Additionally, the fraternity will be

responsible for all maintenance on the house, meaning your investment

would be hands off and really work for itself. As stated earlier, the ONLY cost to

you, would be the down payment on a mortgage for this property. All property

taxes, mortgage payments, and housing insurance costs will be paid for

by the fraternity through rent and dues (see financial plan in next section).

Additionally, you will never have to pay marketing or listing costs to rent.

8

I would also like to address some of the concerns I’m sure you have about us being

a fraternity. The biggest probably being, “what if the fraternity suddenly, or over

time, fails and I have no one to rent this house to/pay off the mortgage?” There are

a number of things I would like to point out in order to ease your mind here. First,

as I’ve already stated, our members are of the highest quality. The intelligence and

competency of the group will never be an issue given that everyone attends the

University of Chicago. When we established Pike at the University in 2018, part of

our mission was to do something different than the other fraternities on campus. We

recruit different, set different priorities and expectations, and don’t put our new

members through pointless and dangerous hazing practices. Given all these things,

I believe mine to be the genuinely best group of men on campus, and can assure you

that the people who would live and spend time in this house are some of the most

responsible, well-intentioned, and intelligent people you will ever meet. As such,

while the fraternity promises to cover any maintenance that needs to be done, we

also promise that each member will treat the property as if it was something they

owned themselves.

9

Second, and this is something that is especially attractive about our specific group, is

that all fraternities are “off-campus” at the University of Chicago. This means the

University has no jurisdiction over Greek Life, and in the event of a worst-case

scenario, we cannot be “kicked off campus” or suspended, both things that would

most likely hurt our recruitment. Third, the house itself is a way to even further the

success we’ve already been having. Our recruitment numbers are in the top 4 out of

12 fraternities at our school. However, we are 1 of only 3 of that 12 that does not

have a permanent residence, and with housing being such a competitive factor for

fraternities at UChicago, we believe living in and operating from this property would

catapult us into first place. Again, this is all relevant to you because in this position,

the chances we wouldn’t be able to fill this property with tenants is virtually zero.

To Recap: Investing in a Mortgage for Our Fraternity

Pros Cons

Steady stream of renters for as long as you want

Extremely small chance that worst-case scenario happens and run out of tenants

Fraternity handles all maintenance Higher Potential for damage to house

Fraternity pays mortgage payments

Fraternity pays property taxes

Fraternity pays house insurance

Fraternity builds up its own maintenance fund

A group of men who will change your perception of what a real fraternity is

No marketing or listing costs to rent

10

The Financials We are aware the what this or any investment really comes down to is the

numbers, and so I am excited to show you what’s possible with this specific

property and the resources that Pike at the University of Chicago has. We want to

structure the investment in the way that makes most sense for you, however there

are a few guarantees that we want to make regardless of the route you choose:

• Each year the tenants will sign a triple net lease with the investor making

for a true armchair investment. You will never have to worry about paying

property tax, housing insurance, or maintenance costs.

• Your net operating income (NOI) will come from a combination of rent

from the specific tenants and a fraternity contribution which will come from

the dues we all pay 3 times a year.

• Your NOI will ALWAYS be greater than your mortgage payments,

meaning that after your initial investment you will never have to pay another

penny out of your own pocket

• In order to make sure you are as comfortable as possible with this

investment, the fraternity will enter into a contract that ensures we provide

you with the contribution described below for 15 years (or the length of the

mortgage)

• We are paying $6,000 (inflation adjusted) per year for maintenance, and any

of this not actually used will be set aside in a specific maintenance fund.

• We will cover fees such as the cost of setting up the LLC, closing costs, etc.

11

Rental/Tenant Structure (8-person plan) Room Monthly Rent (initial year)

Downstairs Double $600 (x2)

Downstairs Single $900

Upstairs Double #1 $700 (x2)

Upstairs Double #2 $750 (x2)

Upstairs Single $1000

Total $6000

The following values are based on some research I’ve done on mortgage terms and housing costs for our specific zip code (60637). These values represent a conservative scenario in that we have maintenance and housing insurance increasing by 2.5% per year to account for inflation, while rent and the fraternity contribution only increase by 2%. This is not to put a ceiling on the amount we contribute, but to give you a base scenario from which things can get even better. We also have a Pi Kappa Alpha volunteer alumni advisor who works in Real Estate in Chicago and is helping us with the specifics of this process.

Mortgage Scenario

Term 15-year fixed rate

Purchase Price (with no negotiation) $900,000

Down payment $225,000

Interest Rate 4.0%

Monthly Payment $4,993

12

Net Operating Income Calculation For First Year

Property tax (see note on next page) -$10,000

Housing Insurance -$3,900 (2.5% increase/year)

Maintenance -$6,000 (2.5% increase/year)

Rent $72,000 (2% increase/year)

Fraternity Contribution $15,000 (2% increase/year)

Net Operating Income (increases each year)

$67,100

Key Investment Values

Initial Cap Rate 7.25%

Cap rate during year mortgage is paid off (2035)

8.74%

Key Takeaways: • Cap rate of 7.25% - 8.74% depending on the year • If you purchase the house with a $225,000 down payment and get

a 15-year fixed rate mortgage at 4.0% interest, AND given a conservative average 2% appreciation in the real value of the house per year, your inflation adjusted ROI for selling the house 15 years out is 543%

13

Some Important Clarifications:

• One of our guarantees is that after your initial investment, you won’t have to

pay a single other cost out of pocket. The way we ensure this is through a

fraternity contribution on top of rent. The amount the fraternity contributes

each year is either $15,000 *1.02 for each year since the initial (2021).

• From the very first year the net operating income (Rent + Frat Contribution

- Maintenance - Insurance - Taxes) will be greater than the mortgage

payments.

• The most recent property tax paid was ~$9300, but for the 20 years prior to

2018, the bill fluctuated between $5600 and $7800. I am accounting for

worst case here by bringing the tax up to the Zillow estimate over 10 years,

and then up $1,000 every five years after that. Our advisor who is very

knowledgeable on Cook County taxes does not think it will go up this much.

http://www.cookcountypropertyinfo.com/pinresults.aspx

• We are budgeting $6,000 per year for maintenance (increasing by 2.5% per

year) but many years not all of this will be used. The fraternity promises that

all leftover funds will be deposited in a separate maintenance fund to be used

when necessary, or at your request. If you decide to sell the house after the

15-year mortgage is paid off, the entire fund will be at your disposal to make

any renovations necessary.

14

Financial Details by Year

Year Rent Frat. Contribution Insurance Prop. Tax Maintenance NOI

2021 72,000.00 15,000.00

3,900.00

10,000.00 6,000.00

67,100.00

2022 73,440.00 15,300.00

3,997.50

11,000.00 6,150.00

67,592.50

2023 74,908.80 15,606.00

4,097.44

12,000.00 6,303.75

68,113.61

2024 76,406.98 15,918.12

4,199.87

13,000.00 6,461.34

68,663.88

2025 77,935.12 16,236.48

4,304.87

14,000.00 6,622.88

69,243.85

2026 79,493.82 16,561.21

4,412.49

15,000.00 6,788.45

69,854.09

2027 81,083.69 16,892.44

4,522.80

16,000.00 6,958.16

70,495.17

2028 82,705.37 17,230.29

4,635.87

17,000.00 7,132.11

71,167.66

2029 84,359.48 17,574.89

4,751.77

18,000.00 7,310.42

71,872.18

2030 86,046.66 17,926.39

4,870.57

19,000.00 7,493.18

72,609.31

2031 87,767.60 18,284.92

4,992.33

20,000.00 7,680.51

73,379.68

2032 89,522.95 18,650.61

5,117.14

20,000.00 7,872.52

75,183.91

2033 91,313.41 19,023.63

5,245.07

20,000.00 8,069.33

77,022.64

2034 93,139.68 19,404.10

5,376.19

20,000.00 8,271.07

78,896.52

2035 95,002.47 19,792.18

5,510.60

20,000.00 8,477.84

80,806.21

2036 96,902.52 20,188.03

5,648.36

21,000.00 8,689.79

81,752.39

2037 98,840.57 20,591.79

5,789.57

21,000.00 8,907.03

83,735.75

2038 100,817.38 21,003.62

5,934.31

21,000.00 9,129.71

85,756.98

2039 102,833.73 21,423.69

6,082.67

21,000.00 9,357.95

87,816.80

2040 104,890.40 21,852.17

6,234.74

21,000.00 9,591.90

89,915.94

15

On the Fraternity’s Ability to Contribute Cash As seen in both scenarios, the fraternity will be expected to contribute a substantial amount per year to the costs of the house. Our current/base abilities for THIS year are such that with NO help from any alumni donors (which is something that will almost assuredly happen in the near future), we are working with $46,260. This amount is set to increase naturally every year as our numbers grow. As stated earlier, we currently have 50 members but at our current growth rate will settle just above 90 within three years ($87,469/year). Additionally, as we build relationships with alumni, the pool of money we’re working with will grow as I have complete faith in our industrious and intelligent membership to successfully solicit donations. This process is beginning in the Spring with our first annual alumni event which will host a panel of distinguished speakers from the University of Chicago Economics Department.

On the Fraternity’s Long-Term Goals for Housing The most important thing for us is that we find long-term housing as soon as possible, beginning with the 2020-2021 school year. Achieving this will boost our ability to operate and our standing on campus in a variety of ways, as I described in an earlier section. 15 or 30 years down the road, when the mortgage is paid off, we will be much more flexible. One of your concerns might be, “will I be able to kick the fraternity out of the house when it’s time for me to sell?” Legally the answer is yes, but we want you to know that from our end the answer is yes as well. We want to work with you, and when it does come time for the sale of the property Pike will operate on your terms. If housing is so important you might be wondering why I’m saying this. The key is that 15 years down the line, we believe our connections with Pike alumni, and even with current members like myself and the rest of the executive board will allow us to more easily explore other housing options. On the flip side, if you would like to keep the property for the rental income, the location is so ideal that even if the fraternity were to purchase a second house, we would always be able to fill this one for you.

16

Summary While your investment in 1224 E 57th St obviously benefits us as the Pi Kappa Alpha

Fraternity at the University of Chicago, we hope to have demonstrated that given

our unique situation, it will be profitable for the investors. We seriously appreciate

your time in reading this outline, and hope you consider working with us this year.

Below is a final summary of the key facts.

• With the University of Chicago’s ongoing expansion in both real estate and

student population, properties in the Hyde Park neighborhood are attractive

investments

• The property in question is in an extremely desirable location near the

center of campus, and as the University grows, will only become rarer of a

find

• There are many benefits of renting to a fraternity which include but are not

limited to steady stream of tenants year after year, maintenance being

covered, and all associated taxes, fees and payments being covered.

• Triple net lease

• Initial investment of ~$230,000

• This is the ONLY cost you will ever pay out of pocket

• Initial cap rate of 7.25%, growing to 8.74%

• If you sell house 15 years out, projected 543% ROI